Shares in American International Group (NYSE: AIG) were taking a hit on Wall Street after a prominent analyst warned that three of its long-tail lines of coverage were significantly under reserved. The warning was issued by analysts at Bernstein Research who said the bulk of the reserve deficit is with its general liability and professional liability lines of coverage, but workers' comp accounted for $1.8 billion of the total, according to published accounts of the research report.

Overall, the three lines amounted to an estimated $10 billion shortfall, while another $1 billion is spread across other lines. AIG spokesman Mark Herr says AIG is “not commenting” on the report and contacts at Bernstein Research were not available to elaborate on their findings.

Those findings could spell trouble for taxpayers who are on the hook for approximately $180 billion in financial aid to the troubled carrier. Taxpayers own 80% of the company and the value of their investment tumbled in trading on Monday in the wake of the report. Shares were off over 14% in late-afternoon trading to $28.52 a share.

While the report is troubling, the company had been showing signs of improvement. AIG and its Chartis general insurance unit recently closed the third quarter with $455 million in net income -- the second quarter in a row in which it posted a profit. AIG had adjusted net income of $1.9 billion in the quarter compared to a $9.2 billion adjusted net loss last year. For its Chartis unit, which covers its workers' comp operations, the company reported net operating income of $722 million. This is up from $105 million in the same period last year and was helped by $612 million in net investment income.

Premiums, however, were down for the unit. AIG says Chartis' net written premiums amounted to $8.1 billion in the quarter - a 13% decline from the prior year period. AIG said the drop-off was due in part to a decision to hold the line on prices for its workers' comp business, which accounts for 14% of its gross written premiums.

In California, AIG had nearly $576 million in written premiums in 2008 or 7.5% of the market. AIG companies filed for rate increases of 10% and 7% during the January 1 and July 1 filing periods last year. It hasn't filed its 2010 rates.  Companies in the AIG group filed for an 8% increase for its 2010 rates.

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Filed by Bess Shapiro in Sacramento and Brad Cain in San Francisco